Debt Consolidation
If you're thinking about using debt consolidation to get out of debt then you need to read everything on this page. This is a method you should only consider if you: i) have acceptable credit, ii) owe many different people or write several checks each month, and iii) want to make only 1 or 2 payments each month.
Consolidating your debts mean combining them into one. The easiest way to do this is to get a loan to payoff all your current debts. You will end up owing only one person or company and making a single payment each month. At this point you may be asking yourself why should I do this, it doesn't seem to make any sense?
Debt consolidation can make a lot of sense if done right..
The main aim of debt consolidation is to lower your overall monthly debt payment. It makes no sense to do it if any of these things happen:
- You end up owing more than you did to begin with
- Your monthly payment is higher than all your previous debt payments combined
- You take longer to pay off the new debt than the old ones, and/or
- Your new loan has a high interest rate
In order to get a good rate on a loan (or even to qualify) you must have an acceptable credit score. Problem is, most people who are struggling with debt, have bad credit. This makes it hard to qualify for a good debt consolidation loan.
Should I use a debt consolidation company?
If you are like the average American you're going to run into three problems if you decide to use the debt consolidation method, they are:
- Bad/poor credit making it hard to qualify for a low interest rate loan
- Few lenders that will even consider giving you a loan
- Not enough knowledge/skill to successfully negotiate with creditors
This is where the debt consolidation company steps in.
Many companies have popped up both online and off, offering to help you to consolidate your debts for a feee. Should you hire one of them? That's a good question. Bear in mind that anything they can do you can do it too. The advantage they may have over you is twofold: first they may have a better relationship with your creditors since they deal with them everyday. And second they may know of lenders that will approve a consolidation loan for you even if you have bad credit.
Some debt consolidation companies will offer to give you an in-house loan to consolidate your debts, be careful...
Remember that you can do this yourself, the most challenging part would be to negotiate with your creditors. But if you choose to hire a company to help you bear these things in mind:
- Use only a reputable company and be sure to check them out thoroughly
- Read everything you get especially the terms of the new loan (you don't want to end up with a high interest rate loan or one with a long term)
- Be aware of how much each creditor forgives off your balances, (these may be seen as income to you and you may owe taxes on them.)
- Get everything in writing!
If you can't get a loan with acceptable interest rate and terms then maybe debt consolidation is not for you. You may want to try another debt reduction method instead.
Bookmark this site and come back often to learn about debt, credit and get ideas on how to build wealth. If you'd like answers to specific questions you may have on any of these topics, please Contact Us and we will answer your questions for you.
|
